Starved of options
As I write this, staff from the International Monetary Fund (IMF) are on their way back to Washington, DC after a routine
visit to SA.
The IMF is notoriously anodyne in the tone and content of its reports, mainly due to its role as an international “adviser” rather than an analyst. Still, its most recent release on SA sounds decidedly desperate. I can’t blame it.
Amid the “cautious optimism” following President Cyril Ramaphosa’s election, the IMF calls for “robust action” to “reduce fiscal debt and reverse the increase in public debt”. It also says that SA must “press ahead with policies to further strengthen governance, encourage competition, increase labour market flexibility, and, more generally, reduce the cost of doing business”. None of that is groundbreaking advice — yet it is advice that is unlikely to be implemented quickly, no matter how dire our current circumstances seem. But unfortunately, our circumstances are too dire for us to do anything else.
Last week, Bank of America Merrill Lynch was the first major institution to revise SA’S GDP growth projections for 2019 to below 1%. Other institutions have predicted slightly higher levels of growth this year and in the years ahead, but none of them is close to the 3%-4% annual GDP growth needed to make a dent in the country’s immense unemployment levels.
And if US President Donald Trump’s trade war pushes the global economy into a recession, the growth outlook for SA is likely to be even worse. It’s in the face of such dire circumstances and projections that even the IMF has been pushed to call for bold action.
Of course, we have all known for years that the public wage bill is exorbitant, that state-owned enterprises are bottomless pits for public funds, and that the unions are too powerful for any meaningful labour market reform to be introduced quickly.
But doing nothing has been much easier than doing something.
Much as it is true that Ramaphosa’s election victory is a step in the right direction, the delay in appointing his cabinet suggests that he still faces significant challenges in the ANC, and this will affect his ability to act as swiftly and decisively as the IMF would want.
As a friend wryly said last week: “Ramaphosa is no [Margaret] Thatcher. There is no way he could withstand a three-month public sector strike.” I wonder if he’s right.
What happens next, if Ramaphosa fails to act quickly enough, is outlined in the IMF’S statement.
It reads like a tragic tale that the government has been told a thousand times (it probably has): “If reforms are delayed, investments would fail to pick up, economic growth would remain weak in the medium term, and per capita income would continue to decline. With underexploited export potential, the external position would remain weak and the current account deficit financed mainly by non-foreign direct investment inflows. The fiscal deficit is set to worsen as weak growth constrains revenue, current expenditure remains rigid, and public enterprises require additional support.”
I could go on, of course, but I’m sure you get the picture.
SA stands on a social, economic, and political precipice. High levels of poverty and inequality have led to a huge rise in populist and nationalistic agendas that can be addressed only with sustained and inclusive economic growth.
Low growth and long-standing structural imbalances mean that both inequality and unemployment are likely to rise in the medium term — quite possibly stretching the social fabric to breaking point.
Indeed, as things stand, research shows that earnings at the top end have increased faster than earnings at the bottom, while earnings in the middle have stagnated. In terms of public finance, slow growth and low revenues mean that the only way to plug the gaping holes left by the ruinous administration of former president Jacob Zuma is by reallocating existing public funds – and that’s a difficult task, at the best of times, for the toughest of politicians.
But unfortunately for Ramaphosa, no other options are available.
In the face of such dire circumstances and projections even the IMF has been pushed to call forbold action